Implications of the Global Financial and Economic Crisis on the Tourism Sector in Egypt



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Implications of the Global Financial

and

Economic Crisis on the Tourism Sector in Egypt


Author

Dr. Mohaya Zaytoun

In Collaboration with
Ahmed Heiba Maha Abdel Hakim

January 2010

Abstract

The main objective of this study is to examine the impact of the global financial and economic crisis (GFEC) on Egyptian tourism generally and on tourism employment in particular. The importance of this examination stems from the fact that tourism is one of a few dynamic sectors within the Egyptian economy, and it is also an economic activity highly connected to world market and external demand. The crisis therefore is most likely to exert a crucial impact on employment in the tourism sector which is essentially a service sector.

The FY 2008/2009 is considered in the study to be a counterpart of the crisis period. Nonetheless, analysis of the quarterly and monthly official statistics reveals more detailed information of the crisis impact. The findings demonstrate Findings reveal that tourist demand in Egypt witnessed a setback in 2008/2009 where the burden of crisis fell heavily on international tourist arrivals (ITAs) and tourist nights (TNs) during the months of January – March 2009. A negative but small rate of growth of foreign exchange receipts (FER) has also been observed for the whole FY 2008/2009. The most severe negative growth, however, appeared during the third quarter of this year.

Besides, given the high performance of most tourism indicators over the period preceding the GFEC, and the optimistic future expectations predominating before the crisis, the opportunity losses were found to be considerable in terms of ITAs, TNs, FER and tourism GDP. Yet, a tendency towards partial recovery has also been observed for all tourism indicators towards the end of the FY 2008/2009.

The study has also undertaken a hotel sample survey (HSS) covering the Egyptian hotel sector, in order to highlight the crisis impact utilizing primary data and direct information which cannot be easily obtained from published statistics. The Hotel Sample Survey's (HSS) results have revealed the existence of a widespread negative impact of the crisis on: hotel occupancy, hotel revenues and liquidity. Regarding the impact on employment policy, there is almost consensus among hotel employers that the impact of the crisis has been negligible as far as lying off workers, transferring them from one hotel or company to another, or changing their employment contracts. Oon the other hand. The employment policies which have been more frequently adopted in response to the crisis are in decreasing order of importance: ceasing new appointments, reduction in workers incentives and bonuses, and in some cases imposing compulsory vacations on workers. The (HSS) results reveal further revealed that the negative impacts of the crisis have not been biased against any particular group of workers.

The study has finally presented tourism workers' viewpoint on the crisis impact. It is claimed that workers dismissal has not been a rare event, particularly during the early period of the crisis where uncertainty and confusion prevailed.



Table of Contents

(1) Overview of the Egyptian Tourism Industry Prior to the GFEC 16

(1-1) Tourist Demand 16

17

(1-2) Tourism Capacity 19



(1-3) Tourism Employment 24

(2) The Impact of the Crisis: Aggregate Level Analysis 33

(2-1) Global Trends Under the Crisis 33

(2-2) The Egyptian Economy Under the Crisis 35

(2-3) The Impact of the GFEC on Egyptian Tourism 37



(3) The Impact of the GFEC on Egyptian Tourism and Employment: The Hotel Sample Survey (HSS) 44

(3-1) Profile of the Hotel Sample Survey 44

(3-2) Pattern of Hotel Ownership and Management 46

(3-3)The Overall Impact of the GFEC 47

(3-4)The Impact of the GFEC on Hotel Demand 48

(3-5) Pattern of Hotel Employment 50

(3-6) The Crisis Impact on Employment 57

(3-7) Workers’ Viewpoint of the Crisis’ Impact 60



(4) Combating the Crisis and the Future Prospects 64

References 67

English References: 67

Appendices 69

List of Tables

(1) Overview of the Egyptian Tourism Industry Prior to the GFEC 16

(1-1) Tourist Demand 16

Figure (1) 17

Egypt’s International Tourist Arrivals (ITAs)(mn) 17

17

Figure (1) : Egypt’s International Tourist Arrivals (ITA)(mn) 17



Table (1) 17

Development of International Tourist Arrivals (ITAs) and Egypt’s Share 17

Figure (2) 18

International Tourist Arrivals by Generating Regions 18

(Average 2004-2008) 18

Figure (3): Tourism by purpose of visit, Egypt and the world 2007 19

Figure (3) 19

Tourism by Purpose of Visit, Egypt and the World (2007) 19

(a) Egypt (b) Global 19

(1-2) Tourism Capacity 19

Figure (4) 19

Index Numbers of Hotel Capacity by Type of Accommodation 19

(1999-2008) 19

Figure (5) 20

Hotels and Tourist Villages Capacity (No. of Rooms) by Category (2004, 2007) 20

Figure (5): Hotels and tourist villages capacity (no. Rooms) by category (2007). 21

Figure (6) 22

Existing and under construction Hotels and Tourist Villages Capacity by Main Governorates/ Areas (2000, 2008) 22

Figure (7) 23

Average Occupancy Rate by Tourist Destination (2004-2007) 23

Figure (7) : Average occupancy rate 2004-2007 by tourist destination 23

Figure (8) 24

Hotels and other Establishments Capacity by Region (2007) 24

Figure (8) : Hotels and other establishments capacity by region 2007 24

(1-3) Tourism Employment 24

Table (2) 25

Employment in Hotels and Restaurants (2004-2008) (Hundred Workers) 25

Table (3) 26

ITAs, Tourism Capacity and Tourism Employment 26

Table (4) 27

Total and Female Employment in Hotels and Tourist Villages 27

Table (5) 27

Total and Female Employment in Hotels and Restaurants (Hundred) 27

Table (6) 28

Distribution of Employment in Hotels and Tourist Villages 28

and Hotel Capacity according to Governorate (2007) 28

Table (7) 29

Relative Distribution of Hotels and Total Number of Workers 29

according to Educational Level (2006) 29

Table (8) 29

Occupational Structure of Hotel Employees (2006) 29

Table (9) 30

Average Weekly Wages and Hours of Work in the Hotel 30

and Restaurant Sector and the Whole Economy (2007) 30



(2) The Impact of the Crisis: Aggregate Level Analysis 33

(2-1) Global Trends Under the Crisis 33

Figure (9) 34

Monthly Change in Global ITAs During the Crisis Period 34

Figure (9) : Monthly change in global ITA during the crisis period 34

(2-2) The Egyptian Economy Under the Crisis 35

Figure (10) 35

Quarterly Rate of Growth of Real GDP (2007/2008 and 2008/2009) 35

Figure (10) : Quarterly rate of growth of real GDP 2007/08 and 2008/09. 35

Figure (11) 36

Real GDP Growth Rates for Tourism and Other Activities during 36

(October 2008-March 2009) 36

Figure (11): Real GDP growth rates for tourism and other activities during 36

Figure (12) 37

Unemployment Rate at the End of the 4th Quarter of 2007/2008 and 2008/2009 by Gender 37

Figure (12): Unemployment rate at the end of the 4th quarter of 2007/08 & 2008/09 37

(2-3) The Impact of the GFEC on Egyptian Tourism 37

Table (10) 38

Number of Tourists and tourist Nights ITAs and TNs (mn) under the GFEC. 38

Figure (13) : Monthly rates of growth of ITA to Egypt (2008 until June 2009). 38

Figure (13) 38

Monthly Rates of Growth of ITAs to Egypt (2008 - June 2009) 38

Table (11) 39

Monthly Rate of Change of ITAs during the Crisis Period in Egypt and the World 39

Table (12) 40

The Contribution of Tourism to Foreign Exchange Receipts (2003/2004 – 2008/2009) 40

(US $ million) 40

Table (13) 40

Quarterly Tourism FER under the GFEC ($ mn) 40

(2007/2008, 2008/2009) 40

Table (14) 41

The Impact of the GFEC on FER from Tourism and Oother 41

Foreign Exchange Sources (2008/2009) 41

Table (15) 41

Development of Tourism Share in GDP (LE mn) 41

Table (16) 42

Summary Indicators of the Impact of GFEC 42

on Egyptian Tourism (2007/2008, 2008/2009) 42

Table (17) 43

The Impact of the GFEC on Egyptian Tourism 43

(The Opportunity Foregone) 43

(3) The Impact of the GFEC on Egyptian Tourism and Employment: The Hotel Sample Survey (HSS) 44

(3-1) Profile of the Hotel Sample Survey 44

Table (18) 45

The Importance of the Three Tourism Regions and 45

Hotel Categories Relative to the Overall Hotel Sector 45

(3-2) Pattern of Hotel Ownership and Management 46

(3-3)The Overall Impact of the GFEC 47

Table (19) 47

The Overall Impact of the GFEC* (% Hotels) (September 2008-July 2009) 47

(3-4)The Impact of the GFEC on Hotel Demand 48

Table (20) 48

Occupancy Rates (January-June 2008 and 2009) 48

Table (21) 49

The Decline in the Number of Hotel Residents by Region and Category 49

(January-July 2008 and 2009) 49

Table (22) 49

The Decline of Number of Hotel Residents 49

by Ownership and Management Nationality 49

(January-July 2008 and 2009) 49

Table (23) 49

The Impact on Hotel Demand by Tourist Nationality 49

(3-5) Pattern of Hotel Employment 50

Figure (14) 51

Percentage of Hotel Employment and Capacity by Region. 51

Figure (15) 51

Percentage of Hotel Employment and Capacity by Hotel Category 51

Figure (16) : The share of female employment by region 53

Figure (16) 53

The Share of Female Employment by Region 53

Figure (17) 54

Percentage of Non-Permanent Employment by Tourism Region 54

Figure (17): Percentage of non-permanent employment by tourism region. 54

Figure (18) 54

Percentage of Foreign Employment by Region and Hotel Category 54

Table (24) 55

Distribution of Male and Female Workers by Wage Level (LE per Month) 55

Table (25) 56

Average Wage (LE per Month) for Male and Female Workers 56

by Region, Hotel Category and Management. 56

Table (26) 57

Number and Proportion of Hotels Providing Non-Pecuniary Benefits 57

(3-6) The Crisis Impact on Employment 57

Figure (19) 57

The Existence of a Crisis Impact on Employment Policy by Tourism Region 57

Figure (19) : The existence of a crisis impact on employment policy by tourism region 57

Table (27) 58

Employment Policy Response to the GFEC by Policy Component 58

Table (28) 59

The Rate of Change of Wages 59

Table (29) 60

A Summary Table of the GFEC Negative Impacts* 60

(3-7) Workers’ Viewpoint of the Crisis’ Impact 60



(4) Combating the Crisis and the Future Prospects 64

Table (30) 66

Hotel Respondents’ Expectations Regarding the Termination of the Crisis Impact on Tourism 66

References 67

English References: 67

Appendices 69



List of Figures

(1) Overview of the Egyptian Tourism Industry Prior to the GFEC 16

(1-1) Tourist Demand 16

Figure (1) 17

Egypt’s International Tourist Arrivals (ITAs)(mn) 17

17

Figure (1) : Egypt’s International Tourist Arrivals (ITA)(mn) 17



Table (1) 17

Development of International Tourist Arrivals (ITAs) and Egypt’s Share 17

Figure (2) 18

International Tourist Arrivals by Generating Regions 18

(Average 2004-2008) 18

Figure (3): Tourism by purpose of visit, Egypt and the world 2007 19

Figure (3) 19

Tourism by Purpose of Visit, Egypt and the World (2007) 19

(a) Egypt (b) Global 19

(1-2) Tourism Capacity 19

Figure (4) 19

Index Numbers of Hotel Capacity by Type of Accommodation 19

(1999-2008) 19

Figure (5) 20

Hotels and Tourist Villages Capacity (No. of Rooms) by Category (2004, 2007) 20

Figure (5): Hotels and tourist villages capacity (no. Rooms) by category (2007). 21

Figure (6) 22

Existing and under construction Hotels and Tourist Villages Capacity by Main Governorates/ Areas (2000, 2008) 22

Figure (7) 23

Average Occupancy Rate by Tourist Destination (2004-2007) 23

Figure (7) : Average occupancy rate 2004-2007 by tourist destination 23

Figure (8) 24

Hotels and other Establishments Capacity by Region (2007) 24

Figure (8) : Hotels and other establishments capacity by region 2007 24

(1-3) Tourism Employment 24

Table (2) 25

Employment in Hotels and Restaurants (2004-2008) (Hundred Workers) 25

Table (3) 26

ITAs, Tourism Capacity and Tourism Employment 26

Table (4) 27

Total and Female Employment in Hotels and Tourist Villages 27

Table (5) 27

Total and Female Employment in Hotels and Restaurants (Hundred) 27

Table (6) 28

Distribution of Employment in Hotels and Tourist Villages 28

and Hotel Capacity according to Governorate (2007) 28

Table (7) 29

Relative Distribution of Hotels and Total Number of Workers 29

according to Educational Level (2006) 29

Table (8) 29

Occupational Structure of Hotel Employees (2006) 29

Table (9) 30

Average Weekly Wages and Hours of Work in the Hotel 30

and Restaurant Sector and the Whole Economy (2007) 30



(2) The Impact of the Crisis: Aggregate Level Analysis 33

(2-1) Global Trends Under the Crisis 33

Figure (9) 34

Monthly Change in Global ITAs During the Crisis Period 34

Figure (9) : Monthly change in global ITA during the crisis period 34

(2-2) The Egyptian Economy Under the Crisis 35

Figure (10) 35

Quarterly Rate of Growth of Real GDP (2007/2008 and 2008/2009) 35

Figure (10) : Quarterly rate of growth of real GDP 2007/08 and 2008/09. 35

Figure (11) 36

Real GDP Growth Rates for Tourism and Other Activities during 36

(October 2008-March 2009) 36

Figure (11): Real GDP growth rates for tourism and other activities during 36

Figure (12) 37

Unemployment Rate at the End of the 4th Quarter of 2007/2008 and 2008/2009 by Gender 37

Figure (12): Unemployment rate at the end of the 4th quarter of 2007/08 & 2008/09 37

(2-3) The Impact of the GFEC on Egyptian Tourism 37

Table (10) 38

Number of Tourists and tourist Nights ITAs and TNs (mn) under the GFEC. 38

Figure (13) : Monthly rates of growth of ITA to Egypt (2008 until June 2009). 38

Figure (13) 38

Monthly Rates of Growth of ITAs to Egypt (2008 - June 2009) 38

Table (11) 39

Monthly Rate of Change of ITAs during the Crisis Period in Egypt and the World 39

Table (12) 40

The Contribution of Tourism to Foreign Exchange Receipts (2003/2004 – 2008/2009) 40

(US $ million) 40

Table (13) 40

Quarterly Tourism FER under the GFEC ($ mn) 40

(2007/2008, 2008/2009) 40

Table (14) 41

The Impact of the GFEC on FER from Tourism and Oother 41

Foreign Exchange Sources (2008/2009) 41

Table (15) 41

Development of Tourism Share in GDP (LE mn) 41

Table (16) 42

Summary Indicators of the Impact of GFEC 42

on Egyptian Tourism (2007/2008, 2008/2009) 42

Table (17) 43

The Impact of the GFEC on Egyptian Tourism 43

(The Opportunity Foregone) 43

(3) The Impact of the GFEC on Egyptian Tourism and Employment: The Hotel Sample Survey (HSS) 44

(3-1) Profile of the Hotel Sample Survey 44

Table (18) 45

The Importance of the Three Tourism Regions and 45

Hotel Categories Relative to the Overall Hotel Sector 45

(3-2) Pattern of Hotel Ownership and Management 46

(3-3)The Overall Impact of the GFEC 47

Table (19) 47

The Overall Impact of the GFEC* (% Hotels) (September 2008-July 2009) 47

(3-4)The Impact of the GFEC on Hotel Demand 48

Table (20) 48

Occupancy Rates (January-June 2008 and 2009) 48

Table (21) 49

The Decline in the Number of Hotel Residents by Region and Category 49

(January-July 2008 and 2009) 49

Table (22) 49

The Decline of Number of Hotel Residents 49

by Ownership and Management Nationality 49

(January-July 2008 and 2009) 49

Table (23) 49

The Impact on Hotel Demand by Tourist Nationality 49

(3-5) Pattern of Hotel Employment 50

Figure (14) 51

Percentage of Hotel Employment and Capacity by Region. 51

Figure (15) 51

Percentage of Hotel Employment and Capacity by Hotel Category 51

Figure (16) : The share of female employment by region 53

Figure (16) 53

The Share of Female Employment by Region 53

Figure (17) 54

Percentage of Non-Permanent Employment by Tourism Region 54

Figure (17): Percentage of non-permanent employment by tourism region. 54

Figure (18) 54

Percentage of Foreign Employment by Region and Hotel Category 54

Table (24) 55

Distribution of Male and Female Workers by Wage Level (LE per Month) 55

Table (25) 56

Average Wage (LE per Month) for Male and Female Workers 56

by Region, Hotel Category and Management. 56

Table (26) 57

Number and Proportion of Hotels Providing Non-Pecuniary Benefits 57

(3-6) The Crisis Impact on Employment 57

Figure (19) 57

The Existence of a Crisis Impact on Employment Policy by Tourism Region 57

Figure (19) : The existence of a crisis impact on employment policy by tourism region 57

Table (27) 58

Employment Policy Response to the GFEC by Policy Component 58

Table (28) 59

The Rate of Change of Wages 59

Table (29) 60

A Summary Table of the GFEC Negative Impacts* 60

(3-7) Workers’ Viewpoint of the Crisis’ Impact 60



(4) Combating the Crisis and the Future Prospects 64

Table (30) 66

Hotel Respondents’ Expectations Regarding the Termination of the Crisis Impact on Tourism 66

References 67

English References: 67

Appendices 69



General Overview

Since September 2008 the world economy began to explicitly face exceptional financial crisis which has triggered one of the most severe recessions in generations. It has started as a financial crisis in the USA and the developed world, and has now become a Global Financial and Economic Crisis which will be referred to in the present study as (GFEC). The severity of the GFEC is revealed from the World Bank statement that the global economy is heading to shrink for the first time since World War II.

Although Egypt and many developing countries had been relatively less exposed to the crisis until the end of 2008, no country remains until now unaffected. Developing countries have become severely vulnerable to the global slowdown after almost all advanced economies entered into recession, and many businesses and companies have been facing bankruptcy and forced to close. Many observers agree that this recession may last even beyond 2009.

The sectors most likely to be hit by the GFEC are those which greatly depend on external markets and world demand. The tourism sector is particularly vulnerable to external economic uncertainly and volatility. Since most activities related to tourism are usually optional, in time of crisis people in advanced countries tend to cover the essentials of life. The demand for recreational activities is likely therefore to decline, or at least people may change their traveling behaviorpattern preferring short over long-haul destinations. Either way, this is most likely to negatively impact Egyptian tourism which depends mainly on tourists from advanced countries.

On the other hand, the more crucial tourism is essential to the overall economy, the greater is likely to be the influence of the crisis on that economy. In Egypt the tourism industry is one of a few dynamic economic sectors, playing a vital role in the economy, including contribution to gross domestic product (GDP), foreign exchange earnings and employment.

The impact of the GFEC on this sector, therefore, deserves careful examination, focusing particularly on the role tourism plays in the employment context and how this role is being influenced as a result of the crisis.

The paper is divided into the following four sections. The first underlines the main features and developments of the Egyptian tourism sector particularly during the few years preceding the crisis (2004-2008). In the second section the impact of the GFEC on the tourism sector in Egypt will be investigated using secondary data and assembling the information available so far on the impact of the crisis. The third section deals with an in depth analysis of the impact of the crisis utilizing the results of a hotel sample survey. The survey is constructed by the present study to portray hotel employers’ response. In addition, other sources of information are also considered to provide input on the crisis’ impact from tourism workers’ stance. The study ends with a fourth section which provides some insights on the resistance of the crisis impacts on Egyptian tourism and future prospects.


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